If the average price of new homes increased by 15% last year, and, as a result, home builders increased the quantity supplied of new homes by 10%, the price elasticity of supply is _____, and the supply of new homes is _____.
A) 0.67; elastic
B) 0.67; inelastic
C) 1.5; elastic
D) 1.5; inelastic

Question

Quizplus · Accepted Answer

The price elasticity of supply is calculated as the percentage change in quantity supplied divided by the percentage change in price. Here, it is 10% / 15% = 0.67, indicating inelastic supply because the value is less than 1.

If the Average Price of New Homes Increased by 15